Amazon Inching Ahead in Competition With Alphabet

The FANG stocks, comprised of some of America's largest tech titans, have all reported their highly anticipated quarterly earnings reports over the past week or so. While shares of on-demand video streaming service Netflix Inc. (NFLX) set an upbeat tone for the period, results were mixed as the week went on. Facebook Inc. (FB) jumped on a Q4 beat on Jan 31, followed by a sell-off of Apple Inc. (AAPL) and Alphabet Inc. (GOOG) stock and another stellar day for e-commerce and cloud computing giant Amazon.com Inc. (AMZN). (See also: Facebook and Google’s Days Are Numbered: Soros.)

In response to the quarterly reports, one team of analysts on the Street marked a major takeaway as the rising dominance of Seattle-based Amazon. As the retailer faces off against its peers in more and more markets, Google parent company Alphabet is at risk of heightened competitive pressure in the advertising and cloud computing market, wrote Stifel analyst Scott Devitt.

In a note to clients Friday, Devitt downgraded shares of GOOG to hold from buy, highlighting potential long-term concerns including "Amazon as the first entry point to the product search; Google Cloud Platform market share; regulatory risk."

'Playing From Behind'

On the positive side, Devitt applauded Alphabet's continued strength in mobile search, YouTube and programmatic advertising, along with its investments in other key growth drivers such as the cloud, hardware and artificial intelligence (AI). Yet despite the strength of Google's core businesses and its strategic growth initiatives, the emergence of Amazon as the first destination for consumer product searches "has the potential to cannibalize Google's revenue from retail advertisers," wrote Devitt. As for Google's cloud computing business, which has high-single-digit market share compared to Amazon Web Services' more than 35% share, he wrote that the business "is playing from behind, but there remains significant opportunity."

On Thursday after the closing bell, Mountain View, Calif.-based Alphabet posted Q4 profit results that fell short of the consensus estimate. Investors sent shares tumbling 4.8% to $1,111.90 at Friday close, worried over an increase in traffic acquisition costs, up 33% over the same period last year. AMZN stock spiked 2.9% to $1,429.95 on both its Q4 results and current quarter guidance which surpassed the Street's forecasts. 

The Stifel analyst's 12-month GOOG price target of $1,150 reflects a 3.4% upside from Friday close. (See also: Alphabet Has ‘Most Hidden Value' of Big Caps: MKM.)